Can Hospital Reject Insurance Payment and Put Lien on Patient’s Personal Injury Case for Full Amount Charged by Hospital?

The case of Iretta Morgan v. Saint Luke’s Hospital of Kansas City is the first in Missouri to address whether a hospital may reject payment of a claim by a health insurer in order to put a lien on the patient’s lawsuit for the full amount of the hospital’s charges.

The hospital in this case treated Ms. Morgan’s injuries from a motor vehicle accident before billing her health insurance company which then paid the hospital bill after applying the appropriate discount. The new twist–after the hospital received payment from the insurer, St. Luke’s returned the check and put a lien on Ms. Morgan’s personal injury claim against the other driver–for the full amount of its bill without the discount given the health insurance company. This effort by the hospital to increase its revenue caused Ms. Morgan to file a class action lawsuit against the hospital in the Circuit Court of Jackson County. Alas, she lost in that court as the judge granted the hospital the rare prize of judgment on the pleadings based on the rationale that the Missouri’s hospital lien statute (430.230) affords hospitals the right to file such a lien “without limitation.”

However, the court of appeals disagreed and reversed and remanded, enabling Ms. Morgan to continue her case against the hospital for violation of the Missouri Merchandising Practices Act (think attorneys fees for prevailing plaintiff), tortious interference with contract/business relationship, and unjust enrichment. The appellate court’s opinion (WD75098, filed June 28, 2013) discusses the split on this issue in other states, noting that “most courts generally hold that a healthcare provider covered under the hospital lien statute may not assert a lien against the claim of a patient with health insurance for an amount beyond what the contract between the provider and the health insurance company dictates.”

In reversing against the hospital, the Western District found first and foremost that while the hospital’s right to assert a lien on the injured patient’s claim for personal injury is not limited by the language of Missouri’s hospital lien law (section 430.230), “it is axiomatic that ‘a lien cannot exist in the absence of [a] debt, the payment of which it secures.'” [Citations omitted.] In other words, the health insurance company had paid the hospital the entire discounted amount due, leaving no debt on which to place a lien.

After all, why should a hospital make more off one patient who has a personal injury claim, that from a patient that does not?

And so this aggressive lien play by the hospital backfires as the hospital has now returned its payment from the health insurance company, and embroiled itself in defending a class action where it risks having to pay the plaintiffs’ attorney fees and more.